Minutes of a Regular Meeting, June 22-23, 2004 - Digital Collections

June 22-23, 2004 29171whichever provides such individual the highest contribution rate based on the terms of theapplicable plan.The Act also provides that an employee who is otherwise mandated into OTRS as ofJune 30, 2004 may elect to cease participation in OTRS and become a participant in the OptionalRetirement Plan. Further, such employee may transfer all of his employee contributions (plusearnings) in OTRS to the Optional Retirement Plan. The ability for current employeesparticipating in OTRS to elect out of OTRS and become a participant in the Optional RetirementPlan is contingent upon approval by the Internal Revenue Service. Employees will have oneyear after such approval has been received to make their election to withdraw from OTRS.Board of Regents’ approval is also requested to select the current investmentproviders in the DCP to provide administrative services for the Optional Retirement Plan and toprovide investment options for the funding of benefits under the Optional Retirement Plan. TheAct provides that the Board has the authority to select companies to administer the OptionalRetirement Plan and to delegate certain responsibilities for administering the OptionalRetirement Plan.ESTABLISHMENT OF CONTINGENCY RESERVECurrently, OTRS is significantly under-funded. The Act provides that the Universityand OSU will make contributions to OTRS that will fund the benefits of participants of OTRSwho elect to withdraw from OTRS and participate in the Optional Retirement Plan. TheUniversity and OSU will contribute 2.5% of total annual compensation to OTRS as an initialfunding surcharge (the “Initial Funding Surcharge”) for each employee who does not participatein OTRS but would have been mandated to participate in OTRS in accordance with the rules ofOTRS existing on June 30, 2004. The University and OSU will pay the Initial FundingSurcharge until the earlier of the date that the liability of the University and OSU in OTRS isreduced to zero or 2034. Depending on annual actuarial valuations, the University and OSU mayalso be required to pay an additional funding surcharge (the “Additional Funding Surcharge”) ifit is determined that the 2.5% contribution to OTRS will not adequately fund the liability of theUniversity and OSU in OTRS. The University will establish a contingency reserve (the“Contingency Reserve”) which shall equal 1.65% of total annual compensation of all participantsin the Optional Retirement Plan. The Contingency Reserve shall be funded on a regular andrecurring basis which shall be no less than annually and shall be held as a segregated andseparate account within the accounts of the University. The Contingency Reserve will beinvested and reinvested as determined by the University and shall be expended solely for thebenefit of the employees of the University. Any expenditures of the Contingency Reserve shallrequire the approval of the Board of Regents of the University.The actuary for the University has advised that the possibility of an AdditionalFunding Surcharge in excess of the Contingency Reserve during the next 30 years is remote. Itis expected that the overall expense for the new retirement programs will be no greater than theUniversity’s projected contribution to OTRS if these changes were not made.The Act contemplates that the University, OSU and OTRS will enter into anagreement of understanding which details the procedures to be applied to review the fundedstatus of OTRS and the actuarial factors to be utilized in calculating the Additional FundingSurcharge, if any. Board approval is requested for the University to enter into the agreement ofunderstanding with OSU and OTRS.If an employee elects participation in OTRS, the employee will contribute 7.0% oftotal compensation to OTRS to cover the employee contribution, and the University will pay7.05% of total annual compensation for the employer fee; and, the employee will continue to